The chairman of the UK Jewish film festival has spoken for the first time about the row that led to it being withdrawn from a north London theatre, and said he felt "sick to my teeth" when the theatre's director demanded to scrutinise the list of films to be shown.

"This was most definitely the thin end of the wedge. Who is she to say this film is right and this film is wrong? We have our own creative curator and our own 15,000 attendees. Why am I having to defer to her about what films she can defend?" said Stephen Margolis, chief executive director of the festival.

The Tricycle Theatre's decision to give the UKJFF an ultimatum over a £1,400 grant it receives from the Israeli embassy has stirred debate around the UK and among film-makers after the theatre's artistic director, Indhu Rubasingham, asked organisers to forgo the money and use of the embassy logo on publicity material for the festival – due to take place in part at the Tricycle in November, as it has for seven years – so they could not be perceived as taking sides in an "emotional, passionate situation". She later accused the film festival of politicising the dispute.

"It's a matter of principle that we should not be told who we should take funding from. Every state gives cultural grants," said Margolis, who dismissed Rubasingham's offer to find alternative funding as a "publicity stunt". "It was never about the money, it's about the whole attitude towards the festival from the start," he said. The dispute arose amid international protests over the Gaza conflict. There have been reports from Jewish organisations of rising levels of incidents of antisemitism. Demonstrators outside the Tricycle on Thursday evening, and on a Facebook protest page, have accused the Tricycle of feeding that rise.

"This has all taken on a life of its own," said Margolis. "People have been offended and outraged by the Tricycle's approach. Why do they feel they have the moral high ground? Everybody deplores what is going on in Gaza. They are a cinema for hire and we are often more criticised for showing leftwing films which are anti-Israeli government policy than the opposite. We're known for a wide range of content, reflecting all sides. It was pointed out that one of our opening films was going to be a Palestinian story, and we had a Palestinian actor coming to attend the screening. The Israeli embassy itself has never made any comment about festival content and I'm sure there are some films they don't like."

A simmering boycott movement has existed against Israel for many years, although the Tricycle insists the UKJFF dispute is not a cultural boycott. The theatre has won support from several figures in the arts, including Sir Nicholas Hytner, director of London's National Theatre, who said Rubasingham and her board had a proven commitment to Jewish culture. He said: "It is entirely understandable that they felt obliged to insist that no government agency should sponsor the festival."

In Israel, film-makers have been watching the row closely. Dror Moreh, director of the Oscar-nominated documentary The Gatekeepers, looking at the role of Israeli security forces in the West Bank and Gaza, said he was opposed to any cultural boycott of Israel. "Is the goal to silence the 'other side'? It's not that I support what the government of Israel is doing. By boycotting, you are saying I don't want to hear, I want to be ignorant – and by doing so you lose part of your soul. You should listen to the other point of view, even if it makes you angry. This is basic to civilisation."

He said he was "devastated" by civilian deaths in Gaza, but added: "I have one question – which doesn't excuse the killing of children and women. In the last year, thousands of children have been butchered in Syria, Isis are killing thousands around the Middle East, Boko Haram is doing the same in Nigeria. As an Israeli and a Jew, I ask where is the protest in the UK about that?"

Documentary-maker Avi Mograbi said: "The immediate identification of everything Jewish with Israel is a mistake that of course the state of Israel has contributed to since its foundation, and a lot of Jews pay for that."

Israeli Guy Davidi, who co-directed Five Broken Cameras with Palestinian Emad Burnat, saw his film threatened with a boycott. "It's important to have an open dialogue, and culture should be the last thing to suffer," he said.

"It's a way for people to express condemnation but it doesn't have great influence." But, he added, "culture can be used as propaganda, and in such cases I understand and even support a boycott."

He called the UKJFF misguided to accept Israeli government funding. "A film festival in the UK should be completely independent of government money – especially a government that is so guilty of human rights violations."

Jonathan Levy, Tricyle chairman, stated: "The Tricycle will be pleased to host the film festival, provided that it occurs without the support or other endorsement from the Israeli government."

But Margolis said: "The Tricycle has missed an opportunity to embrace a cultural programme that would have brought people together. I would never encourage a cultural boycott of any sort because culture brings people together. We're not propagandists. I have to ask, does the Tricyle want us there? If they do, then invite us back and we can build bridges. If not, at least be honest about it."